A Quiet Flaw in US Social Security?

[flex727]

@Malodorous

Wait, didn’t we just decide SS benefits are indexed to inflation? So, in theory, it shouldn’t matter if you worked a year in 1920 or a year in 1999 for the same salary in real dollars, you should get the same benefits out when you retire. Am I incorrect?

You are incorrect.

Yes, the benefits are indexed to wage inflation (generally higher than price inflation), but the starting benefit level is based on money you have paid in. Normally, that would automatically be adjusted for inflation as wages rise over time, but if you aren’t working then you don’t see that change.

[Malodorous]

@flex727

but if you aren’t working then you don’t see that change.

errr…I still don’t get it? Why don’t I see that change if I’m not working.

[UncleBeer]

@Freddy the Pig

Actually, the Social Security Administration projects that outlays will begin exceeding revenue in 2017. In 2040 the trust funds will have been exhausted.

Ooops. You’re right. My bad.

[Kimstu]

@Clothahump

SocSec is a giant Ponzi scheme, and it is reaching critical mass.

This is not a factual answer. Social Security is not a Ponzi scheme. And if by “reaching critical mass” you mean “about to go broke”, it isn’t.

We can of course debate the nature and severity of various problems affecting Social Security as currently structured, and the merits of various proposed modifications. But we can’t do it here.

[Malodorous]

@Malodorous

errr…I still don’t get it? Why don’t I see that change if I’m not working.

From the SS website:

Social Security benefits are based on earnings averaged over most of a worker’s lifetime. Your actual earnings are first adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then we calculate your average monthly indexed earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or “primary insurance amount” (PIA). This is the amount you would receive at your full retirement age, for most people, age 65. However, beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born after 1959.

I still think I’m right, unless I’m misunderstanding this. Of course if you don’t work a full 35 years, then you will get less money since the average will be less. But that little amount of money will still be indexed.

[chorpler]

From what I understand, the reason outlays will begin exceeding revenues in 2017 is that, what with declining birthrates, the aging baby boomers, etc., there are fewer young working types contributing money into the system, and more older retiring types drawing benefits from the system. Is that right?

[Kimstu]

@chorpler

From what I understand, the reason outlays will begin exceeding revenues in 2017 is that, what with declining birthrates, the aging baby boomers, etc., there are fewer young working types contributing money into the system, and more older retiring types drawing benefits from the system. Is that right?

That’s right. This demographic shift is what prompted the establishment of the current “trust fund” or Social Security surplus, starting during the Reagan administration, so that the surplus could take up the slack when the benefits paid out started to exceed the payroll taxes coming in.

This shift in the ratio of workers to retirees is actually just the latest part of a continuous, more gradual change. In 1950 that ratio was 16:1, and since the mid-1970’s it’s been something over 3:1. As of 2001 there were about 3.4 workers per retiree, and that number is projected to drop by 2030 to about 2.1.

[galen]

@UncleBeer

This is flat wrong. Think about it for a minute. If people were getting less than they paid in, then the program wouldn’t be in all the trouble were told.

Who says Social Security is in trouble? Mostly those who have always been against the program from the start.

Social Security is not in trouble.

[DrDeth]

Indeed, if you live to a ripe old age, you’ll get a lot more out that you put in. Many don’t live long enough to collect a dime, however.

If they increase the ages required to collect up a few more notches, we’ll be OK for the forseeable future. Or they could get rid of the cap on paying in. Or make the Disabilty & Survivors portion of it separate.

[Clothahump]

@Kimstu

This is not a factual answer. Social Security is not a Ponzi scheme. And if by “reaching critical mass” you mean “about to go broke”, it isn’t.

It is a Ponzi scheme. The front end folks pay into it, the back end folks take it out. By “reaching critical mass”, I mean that it is going to hit the changeover point where it is paying out more than it is taking in. This is where a classic Ponzi scheme fails. However, the government has something that Ponzi didn’t - the power to tax. And it will keep the Ponzi scheme going by forcing the front end wage earners to pay more in taxes to give to the back end retirees.

A discussion by the Cato Institute:
http://www.socialsecurity.org/daily/05-11-99.html

An even better one, showing the growth in taxes that has already occured:
http://vagabondia.blogspot.com/2005/05/social-security-is-ponzi-scheme.html